FRANK J. FABOZZI, PH.D., CFA
Professor of FinanceEDHEC Business School
MARK PITTS, PH.D.
In Chapter 59 the features and characteristics of interest-rate futures and options were explained. In this chapter, our focus is on how these derivative instruments can be used to control the interest-rate risk of a portfolio.
The price of an interest-rate futures contract moves in the opposite direction from the change in interest rates: when rates rise, the futures price will fall; when rates fall, the futures price will rise. By buying a futures contract, a portfolio’s exposure to a rate increase is increased. ...